Short answer: Because we never really fixed underlying structural problems in the U.S. and global economies that had been building for decades and caused the financial and economic crisis in 2008.
Those problems included a U.S. economy that was living well beyond its means, consuming more than it produced. They included an Asian economic boom that relied on intentionally undervalued currencies that led to massive buildup of dollar reserves and a massive credit bubble in the United States. And they included a new European system with a single currency and a single monetary policy but not the single economy that is needed to go along with it.
Since the crash in 2008, the strategy of economic policymakers has been to flood the global economy with monetary and fiscal stimulus, with governments ramping up deficit spending and central banks printing money and injecting it into the financial system.
The stimulus accomplished its short-term objective of ending the panic and stabilizing the global economy.
What it failed to create, however, was the kind of virtuous cycle of growing sales, growing profits and growing employment, all feeding off of one another, to keep the economy growing even as the stimulus wears off — “escape velocity,” to borrow a term from aerodynamics. The hope was that such self-sustaining growth would give the country the economic and political head room to finally fix the underlying imbalances with a minimum of pain.
Unfortunately, we never reached that escape velocity and have now pretty much exhausted our policy ammunition. As a result, we are now going to have to make the rest of those painful structural adjustments — eliminating jobs, closing companies, lowering incomes, reducing government services — in the context of a stagnant economy.
August 7, 2011
Why is this happening?Posted by greg varner under Fiscal Responsibility | Tags: AAA, perstein, rating, steven |